What is inventory?
Inventory is defined as the quantity of goods or materials on hand.
Inventory control
Inventory control is defined as a tool of management which is used to maintain an economic minimum investment in materials and products for the purpose of obtaining a maximum financial return.
Goal
To support the attainment of the organization primary objective i.e. Patient care with the optimum investment in inventories. Optimum investment may or may not be a minimum investment. It depends on various factors.
· The number of patients
· Patient mix
· Type of services provided
Aim
· To ensure that there is adequate stock of items when required and there is a continuous supply but at the same time not to have too much.
· To ensure that the resources available are most effectively and efficiently used.
Objectives
v To reduce financial investment in the inventories
v To facilitate organization operations
v To avoid losses from inventory obsolescence
v To improve patient care services
Main principle of inventory control
o The item for which annual consumption is high, orders is placed quite frequently so that the inventory level is as low as possible. The items whose annual consumption is not high, sufficient stocks are maintained and the orders are placed less frequently.
o Control is exercised by fixing a minimum and maximum for each item. An item is recorded in such a way that the stocks level, at any given time, never goes beyond the minimum level fixed for it.
o The quantity to be reordered is so adjusted that the stocks does not exceed its maximum level.
Criteria for inventory control
Ø TIME AND EXTENT OF PROBABLE USE
Ø OBSOLESCENCE
Ø STORAGE COSTS
Ø SHRINKAGE
Ø TRANSPORTATION COST
Ø INVESTMENT COST
Ø COST TO PURCHASE
Ø QUANTITY PRICE DIFFERENTIAL
Ø MARKET CONDITIONS AND PRICE TRENDS
Ø TIME REQUIRED FOR DELIVERY
Ø AVAILABILITY OF A SUBSTITUTE
Ø CASH FLOW
Ø ALTERNATE INVESTMENT POTENTIAL
Ø AVAILABLE SPACE
Ø WHETHER IT IS MORE ECONOMICAL TO MAINTAIN AN ITEM THAN TO PURCHASE IT ON DEMAND
Reasons for INVENTORY INBALANCE
I. Failure to review and revise, as necessary, inventory policies on a regular basis
II. Failure to participate in a program of long range planning and policy determination
III. Failure of the system to react to rapid changes in usage or to accurately forecast future needs and requirements.
IV. Failure to develop adequate services of supply break downs in transportation etc.
V. Failure to give the cooperation and assistance to using departments and to properly determine their needs and direction of operation.
VI. Lack of standardization
VII. Failure to base buying on actual needs or scientific facts.
VIII. Failure to obtain and train appropriate personnel
IX. Inability to comprehend and to utilize the mathematical and scientific tools of inventory control such as reorder points, economic order quantity (EOQ), ABC, VED. FSN, SDE, HML ANALYSIS
Inventory analysis
1) Over all analysis
2) Category analysis
3) Individual item analysis
Over all analysis
· Bird eye view of total inventory over a period of time to find out the trends if any
· Important for keeping the track of inventory behavior
· Monthly holding of inventory in monetary terms calculate and compared to that of average monthly consumption. This is inventory carried index. This should be 3 in health organizations i.e. three months requirement should be available in hospital stores.
Category analysis
§ Stocks - category (group of similar items) wise analyzed
§ Targets fixed for each category according to various conditions like lead time, nature of items and source of supply etc.
§ Category with low stocks may need a revision and those with higher stocks may require examination for reduction in inventory.
Individual item analysis
Individual item can be classified
According to their
· USE
· CONSUMPTION PATTERN
· VALUE
· SOURCE OF SUPPLY
· LEAD TIME
Classification
1. ABC ANALYSIS
2. VED ANALYSIS
3. SDE ANALYSIS
4. HML ANALYSIS
5. FSN ANALYSIS
ABC ANALYSIS
Always better control
Analysis of stores on cost criteria
Cost of each item is multiplied by the number in a given period of time tabulate the numerical value in descending order
ü 10% of items account for the 70% of the budget
ü 20% of items account for the 20% of the budget
ü 70% of items account for the 10% of the budget
ABC ANALYSIS
ABC ANALYSIS
A large number of items consume only a small percentage of resources and vice versa.
Category A items
· Ordered more frequently
· Procured on a planned basis
· Estimate the expected future consumption in advance
· Annual contracts with scheduled deliveries
· Revise frequently the quantities, reorder points and safety stocks for items not covered by long term contracts
· Purchasing department should make maximum effort to expedite the delivery of these items as these are to be stocked as minimum
· To be looked by top executive in purchase department
Category B items
· The policies for b items are generally intermediate between a and c items
· Order quantities, reorder points and safety stocks should be fixed for b items barring exceptions and revision only once in a year
· Annual or six monthly contracts with scheduled deliveries can be used to an advantage for b items
· Should be ordered less frequently than a items
Category C items
· Liberal quantities can be kept in stock.
· Less orders to reduce paper work.
· Take advantage of quantity discount for bulk purchases.
· Authority could be delegated to junior executives.
· Stocks and issue records can be minimized to the extent the rules allow.
VED analysis
Analysis based on their criticality
Classified into
Ø Vital
Ø Essential
Ø Desirable
Use of ABC AND VED analysis
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